Harsha Engineers International Ltd: For listing gain

The issue from Harsha Engineers International Ltd opened on Wednesday (September 14) and closes on Friday (September 16). The price band is Rs314-330. The issue consists of a fresh issue of Rs455 crore and an offer for sale for Rs300 crore. This makes the total issue size Rs755 crore at the top end of the band.

Harsha is the largest bearing cage manufacturer in India having a market share which is more than half of the domestic market. There is no meaningful player who could be termed a competitor to Harsha. In terms of the international market, the share of the company is 6.5 per cent market share. Its revenues to the world's top-5 customers account for more than 70.55 per cent of its revenues. It exports 63.31 per cent of its revenues.

SKU Bearings made by Harsha are in brass, steel and polyamide. They currently have 7,300 SKUs and supply upto 2000 mm in diameter. Within this almost all is equally divided between brass and steel and less than two per cent of the products are from polyamide.

Coming to the Indian market, it is expected to grow at about 8.3 per cent over the next seven years. The big opportunity for Harsha is besides this, the markets of Japan where they have now made a breakthrough. Earlier Japanese companies were making bearing cages in house. Incidentally, the cost of a bearing cage is roughly five per cent of the bearing value. Considering the number of SKUs, companies are beginning to outsource even from Japan.

Recently, the company had brought all its businesses under one name of Harsha Engineers. These businesses include besides bearing cages, bronze bushings and specialized components business.

The company has four strategically located plants from where it supplies to 25 countries across five continents. In terms of capacity, it is 109.8 crore pieces. It has overseas plants in China and Romania. The company is promoted by two friends who were studying engineering, way back in 1972. Today the 2nd generation is actively involved in the business as well.

Going forward besides the growth in the bearing cage segment, the company is looking to grow its bronze busing and specialised components business. This is a very high margin product and requires very specialised machines and handling.

The company is also into making moulds and dies for its products. It also has an EPC division for solar panels and farms.

The fresh issue of Rs455 crore would be used for pre-paying existing loans to the extent of Rs270 cr, while about Rs85 cr would be spent on capacity expansion and infrastructure creation.

The company reported revenues of Rs1,321.48 cr for the year ended March 2022 and a profit after tax of Rs91.94 cr. The PE at the top end of the band is 27.73 times. The company has undergone a restructuring exercise and has amalgamated all its businesses under one name. This has diluted the equity to some extent and while the basic EPS for the year ended March 22 was 16.06, on a diluted basis it works out to Rs11.09.

The company is into a niche segment and enjoys a dominant share in the domestic markets. The business is not only growing slowly and steadily, but Harsha is penetrating the organised market share are losing market share. This would be a big gain for Harsha going forward. There is a very active grey market in the share currently which indicates a premium of about 65 per cent. The issue as of 1:30pm on the first day of opening is oversubscribed 1.15 times. The shares and the business look attractive. Readers looking for listing gain and even those who want to invest in an engineering company must apply.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)